SPX Index is between 1390 and 1365 at expiration

Buy 1 SPX 1390 Put at \$25

With the SPX exercise settlement value exactly at the strike price of \$1390 at expiration, the 1390 put would be at-the-money and have no value.

With SPX at the break-even point of 1365 at expiration, the 1390 put would be in-the-money and exercised.

The cash settlement amount received upon exercise would be:

\$1390 (put strike price) – 1365 (settlement value) = \$25 x \$100 = \$2,500

This amount of \$2,500 is the total cost of the put.

If the SPX exercise settlement value is between 1390 and 1365 at expiration, the 1390 put will also be in-the-money and would be exercised. The cash settlement amount received, however, would be less than the total cost of the put, resulting in a partial loss for the position.

For example, say the exercise settlement value is 1375 at expiration. The cash settlement amount received upon exercise would be:

\$1390 (put strike price) – 1375 (settlement value) = \$15 x \$100 = \$1,500

SPX did decline in value, but not as much as anticipated. The put that originally cost a total of \$2,500 is now worth \$1,500, so the investor can recoup some of its initial purchase price and realize a partial loss.

\$2,500 total premium paid for put
\$1,500 cash settlement amount received at put’s exercise (or sale at intrinsic value)
\$1,000 partial loss

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